By Harro Ten Wolde and Maria Sheahan
FRANKFURT (Reuters) - German chipmaker Infineon Technologies has agreed to buy Wolfspeed Power and RF for $850 million from U.S. company Cree, betting on new energy efficient chips it expects will dominate the market in the next decade.
Wolfspeed helps to make electronic devices operate more efficiently as its products are smaller, thinner and faster, lowering power losses in the process.
These silicon carbide chips are expected to gradually replace conventional chips in the coming years and will be in demand for on-board charging in electric and hybrid cars, Infineon's Chief Executive Reinhard Ploss said.
Chips for the automotive industry comprise almost half of Infineon's sales.
The acquisition of Wolfspeed in a cash deal will immediately start boosting Infineon's adjusted earnings per share and margin, the Munich-based group said in a statement.
The company has gross margins of around 55 percent and is expected to grow by an average annual rate of 20 percent until 2020.
Wolfspeed, based in North Carolina, also supplies technology which is needed for the roll-out for the next generation of mobile networks, known as 5G, to enable self-driving cars and to connect consumer electronic devices to the internet.
CONSOLIDATION WAVE
Cree said last year that it planned to list Wolfspeed separately but changed tack after several potential buyers made approaches, the U.S. company said.
"Selling Wolfspeed to Infineon speeds our transition to a more focused LED lighting company while providing significant resources to accelerate our growth," said Chuck Swoboda, Cree chairman and CEO.
A wave of consolidation is reshaping the global chip industry, as rival NXP bought Freescale while ON Semiconductor has agreed to buy Fairchild.
Shares in Infineon rose on the news and were trading 2.5 percent higher at 13.62 euros by 1330 GMT after rising as much as 2.8 percent to 13.67 euros.
"Infineon strengthens its market position in markets which are set to experience structural growth with its attractive product and customer portfolio," said DZ Bank analyst Harald Schnitzer, reiterating his "Buy" recommendation on the stock.
The deal comes only 18 months after Infineon bought power management company International Rectifier for about $3 billion, its biggest ever deal.
The integration of the company went so smoothly that chief executive Ploss told reporters in November that he was eyeing fresh M&A deals.
Infineon will fund the deal with bank financing of $720 million and $130 million of cash on hand.